Bulletin

General Mills to boost ad spending

Food giant also affirms fiscal 2006 profit view

By

WilliamSpain

CHICAGO (MarketWatch) -- As it looks to new products for growth, General Mills said Wednesday that it plans to boost advertising spending at a double-digit rate in the second half of its fiscal year, and noted that cost pressures continue to weigh on bottom-line results.

In a presentation to analysts, General Mills
GIS, -0.81%
noted that its sales were up about 3% in the first half. "Top line momentum is offsetting higher costs," the company said, while it is seeing profit and revenue growth across all three of its business units.

The maker of Cheerios cereals and Yoplait yogurts expects the sales growth to continue through the next six months but added that its earnings will reflect cost pressures and increased advertising.

Between fuel and commodity costs, by the end of fiscal 2006, the company expects to have shelled out $60 million more than its original plan.

The increased levels of advertising will help support some 90 new products and line extensions introduced so far this year, with more still to come.

In ready-to-eat cereals, the company said that its Cheerios brands are performing well, while overall "market share continues to strengthen," from 27.6% in April to 31.4% in November.

The company also backed its view of earning $2.80 to $2.85 a share for fiscal 2006, including an 8-cent dilution tied to accounting for convertible debt. The current average estimate of analyst polled by Thomson First Call is for the company to $2.93 a share on the period.

In a note to investors, Terry Bivens of Bear Stearns wrote that "the top-line momentum and the likelihood of better performance by the Big G cereal unit, bolster our belief that [2006] guidance is conservative, notwithstanding higher input, advertising, and benefit costs."

In addition, "there may be flexibility among major cereal manufacturers to raise their base prices," Bivens said "As CEO Steve Sanger illustrated today, the price gap between all cereal sold 'on deal' and base offerings has narrowed . . ."

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